5/10/2006 @ 11:57AM

OSI's Macugen Still Burdened By Lucentis Threat

Wachovia Securities reiterated an “underperform” rating on
OSI Pharmaceuticals
after the company reported mixed results for the first quarter late Monday.

The biotech firm posted an adjusted profit of 5 cents per share, compared with the First Call consensus estimate of a loss of 11 cents per share. Sales of $116 million came in a little light, however, below the analysts’ forecast of $124 million.

Wachovia’s George Farmer said quarterly results were “consistent with our view that Macugen is a dying franchise.”

“We believe this decline is largely due to penetration of Avastin in the AMD [age-related macular degeneration] market,” said the analyst, “and that Macugen’s share will be affected to a greater extent by the emergence of Lucentis, expected to launch in July.”

Lucentis is a rival drug being developed by biotech leader
Genentech
and is an offshoot of blockbuster cancer drug Avastin. OSI shares have been under pressure in recent months as investors are concerned Lucentis will take significant market share from Macugen.

OSI and Genentech are partners on cancer drug Tarceva, OSI’s other top-selling drug.

Farmer expects the companies to report data on Tarceva at the annual meeting of the American Society of Clinical Oncology in June. Those results, as well as data on a class of drugs known as dipeptidyl peptidase IV inhibitors (DPIV), could provide a catalyst for OSI shares, the Wachovia analyst said.

Partners
Merck
and
Novartis
are expected to release new data on the DPIV inhibitors at the American Diabetes Association meeting, also set for June.

“While we have low expectations for the ASCO data, our current model includes a 2% royalty on DP-IV inhibitor sales, which we model reaching $1.2 billion in 2010,” the analyst said. “As such, we view little upside from this program, however, solid data at ADA in June could be risky to our investment thesis.”